The modernisation of China's economy and the opening of its markets have brought wealth, but at the cost of unemployment for many.

Over the past decade more than a million people have lost their jobs in Shanghai, as an increasingly competitive market-place and government-planned economic restructuring have sounded the death knell for many of the city's old core industries.

The textile industry, once Shanghai's pride, has shrunk most dramatically, with many of its old plants being transferred to inland areas of China, and others closing completely.

According to Professor Liang Hong of Shanghai's Fudan University, these people, who grew up during China's political movements of 1960s, are a lost generation.

"They were assigned jobs in the factories so they didn't have a chance to study more. There are new jobs in Shanghai now - but they're usually for technically skilled workers, and the competition is very intense."

Professor Liang is an advisor to the 40-50 Project, a new employment scheme set up by the Shanghai government which seeks to tackle the problem.

Helping hand

As part of the scheme - the city government provides tax breaks, financial rewards and loan guarantees to new, labour-intensive private businesses, as long as they hire laid-off workers.

The depressed stock market has scuppered government fund-raising plans

The scheme is the first of its kind in China and reflects a growing conviction among Chinese officials that the private sector - and in particular the service sector - has become the main engine of job creation.

"All our feedback shows that these people take their jobs more seriously and are very loyal to their employers," adds Professor Liang.

"They've been through the pain of unemployment and they cherish having a new opportunity. Young people are much more likely to jump from one company to another."

Yet for many in China such job opportunities are wishful thinking.

Early retirement

Mr and Mrs Li are tending to their pet birds in the courtyard of their single-room home in a soon-to-be-demolished 1920s Shanghai lane.

Unemployment will get worse on China's entry into the WTO

They have plenty of time to spare, Mr Li, in his 60s, was forced to take early retirement from his job as a high-school teacher to make way for younger staff when student numbers went down.

His wife, in her early 50s, was asked to retire from her state-run timber factory at 47, when its business started going badly.

Hundreds of thousands of people like Mr and Mrs Li have been pushed into early retirement in an attempt to streamline the workforce. Many are women - female factory workers are now routinely retired at 50.

Even Shanghai¿s job creation scheme is only targeted at those under 50. And yet by many standards the Lis are lucky. They receive a basic but adequate pension and medical insurance.

Some unemployed workers in Shanghai receive only what is known as the Minimum Living Allowance - currently set at around 280 yuan ($34; £24) a month.

In less wealthy parts of China, even this would be a luxury. In many towns, local governments have struggled to pay pensions, sometimes for months or years at a time.

Protests

And the contradictory system of struggling state firms being responsible for paying unemployment benefits to the same workers they have just laid-off is clearly breaking down in some parts of the country.

Young people hope joining the Communist Party will improve their prospects

Such problems have provoked a series of protests - this month up to 50,000 laid-off workers have demonstrated in Daqing in north-eastern China, demanding unpaid benefits and pensions.

And 30,000 workers in another north-eastern town, Liaoyang, have staged two weeks of protests against non-payment of wages and official corruption.

Prime Minister Zhu Rongji acknowledged that urban unemployment is one of the country¿s most pressing problems, and officials are now describing it openly as a potential threat to social stability.

However, funding it is a major challenge - a plan to raise funds by selling off state shares in listed companies had to be suspended last year after it depressed investor sentiment on the country¿s stock market.

Prime Minister Zhu has warned that increased foreign competition brought by China's entry into the World Trade Organisation could lead to a doubling of the official urban unemployment rate over the next few years from 3.5% to 7%, or around 30 million people.

It is numbers like these that make the need for an effective social welfare safety net more urgent by the day.